Years ago, Peter Lynch (of Fidelity Magellan fame) preached that when looking for investment ideas, stock pickers should look closely where they shop and find those new alluring products and retail stores that held the most promise. Times change, of course, and the retail glass on the street is not as promising as it once was. But on a global level, his advice still holds merit in looking at new businesses and technologies for investment ideas. Perhaps replace the shopping mall as your focus and look to your own firm. Which new tech companies are you embracing in your own workplace. Those are great candidates worthy of some further investigation.
Picking the right stocks is certainly a critical part of any successful investing approach. But at best, that’s only 50% of the equation. Let’s call this Stage #1. Possibly even more important is your investor self-behavior and your specific methodology. I’ll label this Stage #2.
Try applying your Peter Lynch-type radar to general issues around you. Ask yourself both what you can learn from these trends and issues and consider how you might possibly incorporate them into investing and managing your portfolio better. This generalist type of radar could be equally as powerful — or perhaps more so — than trying always to pick the next 10-bagger stock.
In previous Traders Journal blogs, Grayson and I have dubbed this “observational investing”. For us both, it’s been a sort of “secret sauce” for our own portfolio management as our powers of observation have matured over many years in the markets.
A simple example presently comes to mind. Singapore and Hong Kong have a combined population of 13 million. They’ve had 29 COVID-19 deaths (as of June 5, 2020). If the USA had a similar fatality rate, our death rate would be 4,100 instead of 24-times higher with over 100,000 deaths. Two lessons jump out at me which may be applied to my portfolio management.
Both Singapore and Hong Kong had a blueprint ready to be implemented at the first sign of an outbreak. I’ve written many blogs about how important it is to have a roadmap (i.e. 10-stages of stock market mastery) and both bullish and bearish scenarios for all your equity positions before you ever buy into your position. You simple cannot wait for the proverbial mud ball to hit the fan before strategizing how you’ll best deal with it. Have your playbook ready. All pro sports teams subscribe to this paradigm — as an investor you should, too.
Both Singapore and Hong Kong acted quickly — aggressively and strategically! Procrastinating during a pandemic will literally kill you. Procrastinating in addressing your portfolio positions can kill you financially. I’ve said this many times before — just because you choose to ignore the markets does not mean they will ignore you.
You see my point. It’s not too late for you to fine tune your radar in both Stage #1 and Stage #2. Look at all the valuable lessons around you which you can grasp if you simply frame them within your money management endeavors.
Trade well; trade with discipline!
– Gatis Roze, MBA, CMT
- Author, “Tensile Trading: The 10 Essential Stages of Stock Market Mastery” (Wiley, 2016)
- Presenter of the best-selling “Tensile Trading” DVD seminar
- Presenter of the “How to Master Your Asset Allocation Profile DVD” seminar
- Developer of the Tensile Trading ChartPack for StockCharts members